---

by Alex Chartove and Brett G. Alten

This update is also available on our Japanese language site.

The U.S. government is considering sweeping changes to the U.S. patent system.  If enacted, the Patent Reform Act of 2005 (also known as "H.R. 2795") would revolutionize many aspects of U.S. patent law.  Several different versions of H.R. 2795 have been proposed and are currently being debated.  It is not yet clear which, if any, of these versions will become law.  Below, we briefly describe ten of the most significant changes that may occur if H.R. 2795 becomes law.

1. First to File -- H.R. 2795 would change the U.S. patent system from a first-to-invent system to a first-to-file system.  Patents would be granted to the inventor with the earliest effective patent application filing date, as opposed to the first person to actually make the invention.  Consequently, the USPTO would no longer conduct patent interference proceedings to determine which inventor was the first to actually make the invention.  Currently, the U.S. is the only country in the world with a first-to-invent system, which is commonly believed to favor small inventors.
2. Claim Validity -- H.R. 2795 would narrow the scope of prior art under 35 U.S.C. §102.  The main changes involve repealing Sections 102(c) and 102(d), although Section 101 would be amended to permit non-inventors to obtain a patent.  In addition, the term "in public use or on sale" as used in Section 102(b) would exclude the use, sale, or offer for sale of any subject matter that had not become reasonably and effectively accessible to persons of ordinary skill in the art to which the subject matter pertains.  Earlier filed U.S. applications would remain prior art.  The earliest filing date would include earliest foreign filing date.  Commonly owned or jointly developed subject matter is not prior art.
3. Best Mode  -- H.R. 2795 would eliminate an applicant’s duty to "set forth the best mode contemplated by the inventor of carrying out his invention."  The best mode requirement is unique to U.S. patent law.  Opponents view the best mode requirement as a subjective element that contributes to high patent litigation costs.
4. Injunctive Relief -- H.R. 2795 would require that (1) a court must consider fairness of the remedy in light of all the facts and the relevant interests of the parties and (2) unless an injunction is entered pursuant to a nonappealable judgment of infringement, a court shall stay an injunction pending appeal if a stay won’t result in irreparable harm and the balance of hardships from the stay does not favor the patentee.
5. Post-Grant Opposition -- H.R. 2795 would establish post-grant opposition procedures.  A person could seek USPTO reconsideration of the grant or reissue of a patent by filing an opposition requesting cancellation of the patent claims.  In most cases the opposition files would be publicly available.  The patentee would be entitled to request amendment of any claims that are subject to the opposition proceeding, including the addition of new claims.   This proposed change, if it goes into effect, would provide another mechanism for resolving disputes prior to litigation.
6. Effect on European Patent Convention and Japanese Patent Act -- H.R. 2795 would encourage the adoption of a one-year grace period within the European Patent Convention and Japanese Patent Act.  This would be accomplished by changing the date the grace period closes from the actual U.S. filing date to the Paris Convention priority date — ifEurope and Japan adopt laws analogous to that of proposed U.S. law.    
7. Enhanced Damages for Willful Infringement -- Under H.R. 2795, enhanced damages for patent infringement could only be awarded if (1) the patentee provided the infringer with written notice of infringement (mere knowledge of the patent would be insufficient), (2) the infringer intentionally copied the patented invention with knowledge that it was patented, or (3) the infringer engaged in conduct similar to conduct previously found to have infringed the patent.  As a defense to enhanced damages, the infringer could argue that it had a good faith belief that the patent was invalid or unenforceable.  Such good faith may be established by reasonable reliance on advice of counsel.  Lack of an opinion from counsel would not create a negative inference of willfulness.  This revision could reduce the instances where enhanced damages based on willful infringement are awarded.   
8. Inequitable Conduct -- H.R. 2795 would change the requirements necessary to prove inequitable conduct before the USPTO by eliminating the "state of mind" inquiry.  A finding of inequitable conduct would require,by clear and convincing evidence,  the Examiner (i) would not have reasonably issued the invalidated claim in the absence of the misconduct or (ii) objectively considering the prosecution history as a whole, would not have issued the invalidated claim based in whole or in part on the misconduct, as opposed to resolving these issues directly.  In addition, the courts would refer inequitable conduct issues to the USPTO for resolution.   
9. Third-Party Submission of Prior Art  -- H.R. 2795 would permit any person to submit potentially relevant prior art patents or publications in a pending application, if the submission is made (A) before the mailing of a notice of allowance or (B) the later of (i) six months from publication by the USPTO or (ii) the date of the first rejection during examination.  Submissions must explain the relevance of each document. Under current regulations, such documents must be submitted within 2 months after publication and cannot include an explanation of relevance.    
10. Damages  -- H.R. 2795 would require a court to consider the "inventive contribution" as distinguished from "other features of the combination . . . " when determining reasonable royalty damages for infringement of combination inventions.  This language is intended to clarify the doctrine of apportionment and the judicially created entire market value rule.

In addition to the ten proposals listed above, H.R. 2795 would:

• permit any organization or person to whom the inventor has assigned or is under an obligation to assign the invention (i.e., the owner) to file a patent application.
• permit the USPTO Director to limit the circumstances under which a continuation application can receive the filing date of an earlier application.
• repeal the exception to publication of all patent applications 18 months after filing that allows applicants to avoid publication by certifying they are not filing in another country.
• expand prior user rights by deleting the requirement for reduction to practice at least a year before patent filing, deleting a limitation to "methods of doing or conducting business," and extending prior user rights to "substantial preparations for commercial use."

Japanese companies doing business in the U.S. are well advised to continue monitoring the progress of H.R. 2795 to determine which of these proposed changes may become U.S. law in the near future.